2025 (5) TMI 38 - HC - Income Tax

Validity of reopening of assessment - non considering assessee s objection against reopening - HELD THAT - In this case AO has been extremely casual in dealing with the assessee s objections. As noted earlier the objections have not been dealt with at all. This amounts to frustrating the salutary process established in the case GKN Driveshafts India Ltd. 2002 (11) TMI 7 - SUPREME COURT After all this to self-certify that objections have been adequately and appropriately dealt with is most improper. Besides in this case the Petitioner-Assessee has filed only one set of objections and without dealing with those objections to say that objections followed by cross objections are an endless process which should end at a certain point in time was not justified. We think that such casualness in the matter of disposal of the assessee s objections to reopening the assessment must end. In several cases the AO s do not seriously deal with the assessee s objections forcing us to set aside such orders and remand the matters to the AO. The other alternative is for the Writ Court to evaluate the reasons and decide upon them. This puts undue pressure on the Court s docket. AO in the first instance deals with the objections one way or the other so that judicial review can be limited to the reasoning of the AO disposing of the assessee s objections to the reopening of the assessment. By shirking their duty of deciding on the assessee s objections the AO s cannot frustrate the scheme provided in GKN Driveshafts India Ltd. (supra). The impugned order is an instance where the AO has virtually declined to exercise the jurisdiction vested in him and to discharge the duty expected of him. We set aside the impugned order and direct the AO to consider the Petitioner s objections filed and dispose of such objections within four weeks of uploading this order.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this judgment are:

(a) Whether the Assessing Officer (AO) properly dealt with the objections raised by the Petitioner against the reopening of assessment proceedings under Section 148 of the Income Tax Act for the assessment year 2015-2016;

(b) Whether the impugned order disposing of the objections to reopening the assessment was legally valid and in conformity with the principles established by the Hon'ble Supreme Court in GKN Driveshafts India Ltd. vs. Commissioner of Income-tax;

(c) Whether the AO's refusal to entertain further objections and the self-certification that objections were "adequately and properly dealt with" without addressing the merits of the objections amounted to a failure to exercise jurisdiction and a breach of the procedural safeguards in reopening assessments;

(d) The appropriate remedy where the AO fails to properly consider the objections filed by the assessee against reopening of assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Proper Disposal of Objections to Reopening of Assessment and Compliance with GKN Driveshafts Principles

The legal framework governing reopening of assessments under Section 147/148 of the Income Tax Act requires that when an assessment is reopened, the AO must provide reasons for reopening and the assessee has the right to file objections against such reopening. The AO is then duty-bound to consider these objections and pass a reasoned order disposing of them. This procedural safeguard was laid down by the Hon'ble Supreme Court in GKN Driveshafts India Ltd. vs. CIT, which held that the AO must deal with the objections in a reasoned manner before proceeding with reassessment.

In the present case, the Petitioner was served a notice under Section 148 and subsequently filed detailed objections to the reopening. However, the impugned order dated 25 March 2022 merely stated that the objections were "perused" and referred to precedents without applying them to the facts or addressing the specific objections raised. The AO concluded that objections were "adequately and properly dealt with" and rejected them without any substantive consideration.

The Court interpreted this as a failure to comply with the procedural mandate under the Income Tax Act and the binding precedent of GKN Driveshafts. The AO's order was found to be superficial and lacking in judicial discipline, as it did not engage with the objections on their merits but instead issued a blanket rejection with a warning against further objections. This was deemed a dereliction of duty and an abuse of the reopening process.

The key evidence was the impugned order itself, which showed no detailed analysis or reasoning on the objections. The Court emphasized that the AO's casual approach undermined the salutary process established by the Supreme Court and frustrated the assessee's statutory right to have objections considered.

Issue (c): AO's Refusal to Entertain Further Objections and Self-Certification of Adequate Disposal

The AO's statement that "objection followed by cross objection is an endless process" and that "any further objection will not be entertained under any circumstances" was scrutinized. The Court found this reasoning to be unfounded and improper, especially since the Petitioner had filed only one set of objections. The AO's self-certification that objections were "adequately and properly dealt with" without actually addressing them was held to be legally untenable.

The Court held that such a stance by the AO effectively shuts down the procedural right of the assessee to have objections considered, thereby violating principles of natural justice and fair procedure. The AO cannot abdicate the duty to decide objections by issuing a summary dismissal or by preemptively refusing to entertain further objections.

Issue (d): Remedy for Failure to Properly Consider Objections

Given the AO's failure to discharge the duty to consider objections, the Court exercised its writ jurisdiction to set aside the impugned order and directed the AO to reconsider the objections afresh. The Court mandated that the AO must pass a reasoned order dealing with each objection within four weeks from the date of uploading the judgment.

Further, recognizing the potential prejudice to the Petitioner, the Court directed that if the AO passes an order adverse to the Petitioner's interest, reassessment proceedings should not commence for four weeks from the communication of that order, thereby providing an opportunity for the Petitioner to seek further judicial review if necessary.

The Court's approach balanced the need to uphold procedural safeguards with judicial economy, emphasizing that the AO's failure to consider objections properly leads to unnecessary litigation and burden on the courts. The remedy ensures that the AO fulfills the statutory and judicially mandated duty of reasoned disposal of objections, limiting subsequent judicial intervention to review of the AO's reasoned order.

3. SIGNIFICANT HOLDINGS

The Court held:

"In the entire impugned order dated 25 March 2022, the AO has not bothered to deal with the Petitioner's objections but merely referred to some precedents on the subject."

"Paragraph 7 is most unfortunate because the AO, without bothering to deal with the Petitioner's objections, has given himself a certificate that the Petitioner's objections 'have been adequately and properly dealt with'."

"Such casualness in the matter of disposal of the assessee's objections to reopening the assessment must end."

"By shirking their duty of deciding on the assessee's objections, the AO's cannot frustrate the scheme provided in GKN Driveshafts India Ltd."

"The impugned order is an instance where the AO has virtually declined to exercise the jurisdiction vested in him and to discharge the duty expected of him."

Core principles established include:

(i) The AO must consider and dispose of objections to reopening assessments in a reasoned and substantive manner, as mandated by the Supreme Court in GKN Driveshafts India Ltd.

(ii) A mere perusal or superficial reference to precedents without application to facts and objections raised is insufficient and amounts to failure to exercise jurisdiction.

(iii) The AO cannot preemptively refuse to entertain objections or cross objections by labeling the process as "endless."

(iv) Judicial intervention is warranted where the AO fails to discharge the duty of reasoned disposal, and the matter must be remanded for fresh consideration.

Final determinations:

The impugned order disposing of objections was set aside. The AO was directed to pass a fresh reasoned order on the objections within four weeks. Further, reassessment proceedings, if adverse to the Petitioner, shall not commence for four weeks post communication of the AO's fresh order. Costs were awarded to the Petitioner for the delay and casual approach adopted by the AO.